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Consumer Credit Rises in June

[Aug 20, 2007.]


Credit card debt rose again significantly in June - a sign of the times, as far as family finances are concerned. It seems that many consumers are turning to plastic to help them make ends meet - even those who might be considered to be in a better position financially because they own their homes.

According to the Federal Reserve Board, consumer credit card debt increased at a yearly rate of 6.5% in June. That's the second straight month of significant increase. The national credit card debt jumped a staggering 7.9% in May.

Specifically, revolving credit rose 8.4% - a significant figure, by any calculation. Meanwhile, auto loans jumped 5.3% - the same hike that was recorded the month before.

Consumer credit debt now stands at $2.4 trillion, thanks to June's sizeable jump. Analysts believe the rapid rise in credit card debt may be due, in part, to the current housing crisis. It's possible that homeowners are now turning to credit cards to handle debt that they would have otherwise assigned to home equity loans. Stricter standards for housing loans may be making it difficult for consumers to draw on the equity from their houses.

Some economists predict that the rise in credit card debt is likely to continue for at least a year. They're betting that, by summer of 2008, housing prices may rise again, easing restrictions on mortgage lending.
The increase in credit card debt can be seen as an alarming trend.

That's because consumers are likely to pay much more in interest on credit cards than they would on home equity loans. Faced with a credit crunch, homeowners may find it increasingly difficult to make their monthly mortgage payments, resulting in even more defaults. The home loan default rate is already at a disturbing level, and additional credit debt could make the situation even worse.

Julie Ann Amos
August 20th 2007

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